In this issue
2016: The Year of UNSEEN Records; USD Php Beats the PSEi for the Second Straight Year!
-Market Manipulation: PSEi “Saved By the Bell” From a Fifth Bear Market
-USD Php-PSEi Inverse Relations Reinforced in 2016!
-2016 Was A Year of Records: Leveraging, Subsidies and Manipulations!
-Newton’s Law in Action, Record Politics too!
2016: The Year of UNSEEN Records; USD Php Beats the PSEi for the Second Straight Year!
2016 has ended. So it is time for a yearend reckoning.
First the “good” news. Due to IPOs, total market cap of the PSE spectrum expanded by 7.2%, according to the PSE, or by Php 973 billion in 2016 to Php14.44 trillion in 2016 from Php13.47 trillion in 2015.
Now to reality.
Market Manipulation: PSEi “Saved By the Bell” From a Fifth Bear Market
In spite of the rise of market cap due to the IPOs, the Phisix fell by 1.6% in 2016 for the second consecutive year of declines. In 2015, the headline index dropped by 3.85%. So 2016’s deficit halved 2015’s losses.
Yet this year’s losses could have even been greater had it not been to the frenzied bidding in support of the index during the last two out of the three trading sessions of the week.
Wild afternoon delight pumps boosted ALL three sessions during the final week of the year! As such, the PSEi closed the year with a huge 4.22% week on week jump in an incredible volume-less week!
Peso volume or the week’s average three day volume at Php 4.35 billion cratered to its lowest since the abbreviated first trading week (with only two sessions) in (January) 2014 at Php 4.032 billion!
Incidentally, the PSEi touched the bear market level anew last December 23!
But thanks to the “upholding of the integrity of the capital markets and to the protection of the investing public” (PSE’s memo on the code of ethics, December 29) as well as to “to make good and do good out of any situation” (PSE closing remark December 29), an afternoon delight pump combined by a price fixing close pushed the PSEi away from another technical bear market (right window).
While the PSE decrees that licensed sales people of trading participants are liable to scams and fraudulent price transactions, they appear to be quite permissive of institutions engaged in price fixing pumps that occur with brazenness (as revealed by accelerating intensity and frequency of such actions)—all designed to embellish the index through the corruption of the pricing system! Price fixing has become a regular feature since 4Q 2014.
PSE’s code of ethics may perhaps be interpreted as: any means that assures the artificial boom is ethical. Meanwhile, small fries are targeted for seemingly feel good politicized goals.
Beats me, but just how can one protect the investing public by tolerating the destruction of the pricing system???
USD Php-PSEi Inverse Relations Reinforced in 2016!
Nonetheless, since 1985, there were only two instances where the PSEi registered back to back annual losses (lower window). That was in 1994 (-12.84%) and 1995 (-6.88%) and for three years in 2000 (-30.26%), 2001 (-21.84%) and 2002 (-12.81%).
These numbers should not be seen isolation as they are connected.
While in 1996 the Phisix rebounded by 22% following two straight years of deficits, this highlighted the final stage of the topping process that served as precursor to the 7 year bear market cycle which climaxed in 2002.
In short, back to back annual declines in the Phisix are hardly promising in terms of likely future outcomes. Instead, these are indications of mounting signs of stress building within the domestic financial market. Intensifying volatility is another. (discussed below)
Additionally, the BSP’s “trickle down” policies have resulted to diminishing returns for the PSEi which has been in a descending trend since 2010.
On the other hand, the USD PHP’s inverse correlation with the Phisix has only been reinforced in 2016 (upper window).
In 2016, the PSEi’s loss had been relayed into significant gains for the USD Php.
The USD peso was up 5.65% in 2016. That’s a follow up to 2015 where the USD peso has likewise been higher 5.23% in 2015.
When the PSEi outperformed (22.76%) in 2014, the USD peso was marginally higher (.73%).
But when taper tantrum affected the stocks in 2013 where the PSEi eked out only a 1.33% gain year on year, the USD peso surged 8.15%!
The USD php as I have written here has turned the corner since 2013.
And the USD peso’s uptrend is likely to continue due to a combination of the internal and external factors.
Nonetheless given the present overbought conditions of the USD php, it is subject to countercyclical trends—given that no trend goes in a straight line (with the exception of hyperinflationary episodes)
2016 Was A Year of Records: Leveraging, Subsidies and Manipulations!
You see, the mainstream has been so desperate to see another record run on the Phisix.
And out of desperation they would do “whatever it takes” even if such actions compromise on the very existence of the markets.
Despite the headline numbers, yet it has been a spectacular streak of assorted records in 2016 for many factors which many have failed to see.
Let me enumerate a few…
The BSP’s policy rates are at RECORD lows (justified under the cover of interest rate corridor). So has been with bank lending rates which are also on a HISTORICAL low. The BSP’s balance sheets have also been at a stratospheric RECORD high. This has been backed by RECORD monetization (Php 200+++ billion) of government debt in the 1Q 2016: the silent stimulus (engineered to bailout increasingly strained government revenues).
[As a side note: government revenues jumped in 18% in November (+4.4% January to November), while expenditures rocketed by 33% over the same period (+11.24% in 11 months)!!!]
The BSP’s GIR’s have been stuffed by UNPRECEDENTED derivative exposures. The banking system balance sheets have soared to UNPARALLED heights. That’s because loans to the private sector has been skyrocketing at RECORD pace to MONUMENTAL levels in response to the silent stimulus. Both production and consumer loans, which are on RECORD highs, remain on fire! Nominal money supply M1, M2 and M3 are at FRESH highs as their respective rate of growth has remained on double digits.
In short, 2016 has seen RECORD systemic LEVERAGING, as well as, RECORD transfers or subsidies to the government and to the cronies!
Mounting Signs of Market Instability
Yet the BSP’s inflationism impact on asset prices has also engendered some RECORDs!
Despite the recent softening (rate of growth), nominal housing prices remain at MILESTONE heights!
Despite rising inflation as seen through the RECORD widening of gap between General Retail Prices Index and Consumer Prices, 10 year Philippine treasuries hit a MONUMENTAL high, in a short blip, last July.
The USD php has been adrift at 2009 levels!
Stock market volatility has been on a record of sorts.
First a short flashback.
2013’s near vertical ascent was curtailed and hounded by three bear market strikes or three touchdown to bear market levels (20+%). This has been largely attributed to US Federal Reserve chair Ben Bernanke’s taper tantrum rather than from mispricing (the real cause).
However, monetary easing by the BSP reversed this downturn.
Yet the path to April 10 2015’s 8,127.48 had been paved with a stunning divergence—almost HALF of listed PSE firms were in bear markets! The 7,400 breakout pump was engineered and primarily directed at issues comprising the headline index. Once the record was hit, the entire charade collapsed thereafter.
And this culminated with the fourth bear market touchdown in 3 years which occurred last January 2016!
It took the BSP’s silent stimulus, in combination with global central bank actions through UNPARALLALEDnegative rates to spur the embattled global stock markets to reverse course. A revitalized risk ON distilled into the Philippine Stock Exchange.
And through vertical price runups, the PSEi accomplished in only 6 months what it had previously done in 14 months (see upper window)! The election of a populist president further rationalized the meltup.
The previous PSEi record was close to being broken. But then, the bidding binge just ran out of steam. And this was largely blamed on politics rather from than again absurd mispricing.
In contrast to 2015, the path to July 21 2016’s 8,102.3 had been marked by RECORD market internals. While the advance-decline spread hardly revealed of lopsided bidding, the average daily trade and average daily issues traded hit FIRST EVER highs. Such were signs of broadbased euphoria!
33.17% returns by the PSEi in just 6 months signified as one of the MOST significant vertical rallies in history!
Yet during the meltup, while official PERs drifted at 14 years high, that’s mostly because the PSE tortured its data to suppress PERs. In reality, at the peak of the meltUP, PSEi’s PERs have broken past the 1996 levels! Another RECORD!
Moreover, during the recent selloffs, international media acknowledged that the PSEi remained “the most expensive in Asia”. Proof of another RECORD!
Massive market manipulations, mostly through marking the close pumps, accentuate another HISTORICAL turning point.
Bear markets reveal to us of the ongoing WATERSHED process.
In the pre-Asian crisis era, the Phisix experienced THREE mini bear market cycles in 2 years before succumbing to the 7 year great bear market cycle of 1997-2003.
Prior to the December 23’s unofficial bear market, as noted above, the PSEi broke past bear market levels four times. This included January 2016’s low at 6,084 (-25.14%). This means that December 23’s unofficial bear market marked the second bear market in a year. This would be the third time since 1994-95 where two bear markets cast a pall on the Phisix in ONE year.
More importantly, in the present cycle from 2013, this would highlight 5 instances where bear market levels have been reached in less than 4 years!
Astounding developments!
Newton’s Law in Action, Record Politics too!
For the PSEi, history has rather been consistent with ALL episodes of vertical price actions since 1965; they eventually accede to Newton’s Law: For every action, there is an equal and opposite reaction.
For instance, not even the fantastic 1993 run up (154% annual) was spared, the 1997 bear market more than eviscerated all gains accrued from its predecessor 1992-1994 inflationary boom.
Despite repeated attempts to price fix the index, current market behavior has only reinforced the Newton’s Law dynamic.
And symptoms of the unfolding Newton Law have been revealed by the amplified RECORD volatilities in the price actions of issues comprising the PSEi composite.
As of the end of 2016, 11 index issues were lower than their January 2016 levels, this included previous record setter JFC. Two major issues, MBT and GTCAP have also been within striking distance to their January lows. For the top 15 biggest market cap, 5 issues were either below or near January lows! That’s even when the PSEi was last quoted at 6,840, and not 6,500!
Meanwhile, Sy group companies have been the only issues striving to recover recent highs.
This striking divergence is a symptom of the engineered support for headline index.
The PSEi was again last quoted at 6,840. The FIRST time the headline index hit 6,800 was in March 2013. This means that four years since, despite the hullabaloo and the deafening screeching about G-R-O-W-T-H, the Phisix remains in a quagmire. An astute observer would note that the Phisix has been playing a jumping rope routine with 7,400 as its base.
And this has occurred even as systemic leverage continues to FLY to the moon!
Records have not limited to economics, monetary policies or financial markets.
We have RECORD politics too!
2016 represented a sea of change: it was the year that featured the first shift of Philippine politics not just to the left, but to embrace arbitrary violence as virtue or key to societal progress!
And it has been a RECORD killing spree out there supposedly for drug related infractions! Curiously, the leadership admitted to being in constant use of fentanyl an opioid pain medication which is as strong or potent as morphine.
And economics tell us that when the cost of an action is LOW then more of the same action will occur.
So when violence is tolerated politically and socially, then violence will proliferate. And violence will likely spur more violence (whether in the form of counterviolence, false flag operations or destabilization sponsored by exogenous political entities). The latest Holiday bombings have been a testament to this.
This is something which I had been predicting since post elections [see Superhero Movies and the Dangers of Extrajudicial Killing as a Local Policy (May 23)]
What will be the consequence of such absolutist political trend? Will state imposed violence be unopposed? Or, like today’s superhero movies, will there be a structural backlash in the form of counterviolence and the degradation of society's moral fiber? Will arbitrary actions through absolutist politics not lead to the corruption or abuse of the system? Will Lord Acton be proven wrong? Will people unduly or innocently killed because of political whims simply absorb and swallow personal losses?
And it’s truly a red herring/non-sequitur when the leadership claims that “Because of the rule of law, there must be fear...violence is my strength”.
The rule of law, as defined by Wikipedia represents the “legal principle that law should govern a nation, as opposed to being governed by arbitrary decisions of individual government officials. It primarily refers to the influence and authority of law within society, particularly as a constraint upon behaviour, including behaviourof government officials”
In short, the rule of law is about the principle of “no one is above law” or the ascendancy of law as a system of governance. Its aim is do away with arbitrariness of political officials. Said differently, yes, rule of law aims to do away with fear imposed by despots. Thus fear, will not originate from political unilateralism, but on infringing the equality before the law.
Furthermore, in contrast to law, here is why fear, as standalone policy, will fail.
As Italian classical liberal philosopher Bruno Leoni wrote* [bold mine, italics original]
If abiding with legal norms actually depended in the main on coercion, or even on the mere fear of it,the whole process would be so full of frictions and so difficult that it wouldn’t work. It is curious to note how many people are so highly impressed by the peculiar nature of coercion as a purportedly typical ingredient of legal norms that they tend to overlook completely the very marginal significance of coercion in any actual legal order as a whole.
Sanctions and coercions do not make the law; they just assist it in a limited number of cases, and besides, as I have already pointed out, they may apply only to some kinds of norms that we would consider as subordinate to others. The main norms often do not even mention sanctions or coercions, for the simple reason that no sanction or coercion could assist them in any effective way: such as constitutional norms, in each single nation, or international norms, concerning relationships between nations.
*Bruno Leoni, Freedom and the Law (LF ed.) [1961] Online Library of Liberty
You see, present ochlocratic politics has been based on RECORD FALLACIES and DISINFORMATION!
And since all actions have consequences, expect the unexpected. Even the leadership recently admitted to“miscalculation” (policy failure). There will be more miscalculation at the expense of the peso and the general public.
